Our Budget Should Grow the Middle Class

By Ted Boettner

Our state budget reflects our values and priorities for public investment, and West Virginia needs public investments in schools, health care, transportation, innovation and public safety to build a brighter and more prosperous future for our middle class, economy, and our children. We need to make the public investments that are essential to making West Virginia a good place to live and work, instead of another round of across-the-board budget cuts, and even deeper cuts in higher education.

Today, we invest $2,500 less per full-time student than we did 10 years ago, after adjusting for inflation. The result has been much larger increases in tuition at our public universities and colleges and more debt piled on the backs of our best and brightest. This may be one reason why West Virginia has the highest rate of student loan delinquency in the nation, according to the Federal Reserve Bank of New York. The last thing a state that ranks poorly in educational attainment and loan delinquency should be doing is cutting higher education.

Over the next month the Governor will be putting together his budget priorities for the upcoming year and it is imperative that we ensure that his budget makes us proud to be West Virginians.

Instead of making additional cuts to important public programs and services that will hold back job creation and our economic recovery, the Governor needs a pro-middle class agenda that makes it easier for our children to get the skills they need to work, start a business and raise a family in West Virginia.

To pass a budget that will grow our state, policymakers first need to recognize this: We have a revenue problem. Our revenue problem is the result of poor fiscal planning. Throughout the last several years, we have enacted deep tax cuts that have deprived our state of the critical resources it needs to make long-term investments. The two biggest culprits have been the gradual elimination of the tax on food and poorly targeted business tax reductions.

While the sales tax on food falls particularly hard on low and moderate-income families with children, there are far more efficient ways to help these families that do not result in losing $170 million a year in revenue. Alternatives include raising and indexing the minimum wage, enacting a refundable state earned income tax credit (EITC) or child care tax credit, or making critical investments in early childhood intervention and education programs like Pre-K for 3-year-olds that have long-term payoffs.

The cuts to the business franchise tax and corporate income tax have also come with a big price tag. All together, these two tax cuts have cost our budget at least $100 million this year. According the West Virginia Budget Office, we collected more in revenue from these two taxes in 1999 than we did last year. In 1990, these two taxes made up over 12 percent of the general revenue budget. Today, it is less than 6 percent.

The worst part is that the state has received little in return. That's because most of these corporate tax cuts have likely flown out of state to shareholders of big companies that have little stake in our state's future. Another reason is that smart business owners do not make decisions based on small reductions in business costs, especially ones that comprise on average less than 1 percent of the cost of doing business. Not exactly a big inducement for business investment.

Instead, what businesses really need are customers. To get customers, you have to have a growing middle class that can provide the demand needed to increase business investment and jobs. And the best way to accomplish this is not by making more budget cuts; it is by creating more economic opportunity.

We don't need a race to the bottom that reduces business costs by pennies on the dollar at the expense of crucial investments in human and physical capital. Instead, we need a race to the top that aims to lift more families out of poverty and into the middle class.

We got to where we are today because the people who came before us made the right decisions to build schools and roads, make college affordable and create strong, safe communities. Abandoning those commitments will not only undermine our economy, but it will make our state a less attractive place to live, work, invest and raise a family.

Boettner is the executive director of the West Virginia Center on Budget and Policy.